Small business owners prefer to work their entire lives
The men’s fashion boutique Drinkwater’s Cambridge in Porter Square is an artfully curated collection of garments that aren’t just made but engineered, says Gary Drinkwater, who co-founded the company with his wife in 2004. Currently in his 60’s, the company now is hitting its stride as its owner reaches retirement age.
Like many entrepreneurs who have spent their lives building up a brand, there is a question of what will become of the business when the visionary is gone. Businesses throughout Boston have shuttered in recent years for lack of a succession plan. Louis, the store founded by Drinkwater’s mentor Murray Pearlstein, closed down in 2015 after three generations of ownership spanned 85 years. Pearlstein took over the business from his father in 1950 and his daughter, Debi Greenberg, took over in 2003 when Pearlstein was in his 70’s. Ten years later despite being profitable, Greenberg closed the business “to pursue other things” she said in an interview with Boston.com. For the large majority of Boston’s 40,000 small businesses few of them will change hands to a second generation.
Drinkwater, however, sees a futrue for his business even beyond his tenure. Looking out of his storefront on Mass Ave, he points out that local university students are dressing better, while older professionals are sporting more casual attire in the workplace. As a result, the product mix in recent years has changed from 70% men’s suits and 30% outdoors dress to sharing that retail space at about 50/50. The store has also benefited from greater demand for American made apparel. Drinkwater says customers are astonished when they learn many of his products are made in the USA. That astonishment has led to “thriving” conditions with his small business etching close to $1 million in annual revenue.
Kevin Mulvaney, professor at Babson College, says "small business with sales less than $1 million are largely dependent on the owner putting in 60 -70 hour work weeks, which may not align with the lifestyle of a new owner." Mulvaney and his colleagues at Babson College have pioneered education on small business issues including mergers and acquisitions, however they focus on companies with $3 – 10 million in sales. "Any less than that, the existing owner is essentially selling a job as opposed to a scaleable company" said Mulvaney.
In the 20 years while Drinkwater’s Cambridge has been serving the community, other clothing retailers have shut down. A customer post on StyleForum.net calls Mr. Drinkwater’s store a “Jewel”. Several other posts and many positive review on the customer review site, Yelp.com, suggest that Mr. Drinkwater has indeed built a brand that is important to a growing number of people. Drinkwater says he wants to find someone capable of bringing the brand forward. “Whether or not we grow to be a national brand, we absolutely can, but I’ll leave that for the next person to decide”.
Voltage Coffee founder on exiting her coffee business
Barismo, an Arlington coffee roaster and retailer bought Voltage Coffee & Art in Kendall Square from it's founder Lucy Valena. Five years ago, Valena founded the Coffee Shop with seed capital from Sam Adams Brewing Company. After the sale, Valena joined Barismo as an "artist in residence" meaning she will train employees, help with design, and oversee other aspects of the store.
When ownership is out of reach
Imagine working in the same garage for 23 years. That's how long Rahul has worked at the Sunoco gas station at the corner of Washington St and Breck Ave in Brighton. He was hired at a starting salary of $400 a week. Five years later he got a raise and then earned $600 each week. He kept that salary for more than 10 years while raising two sons. When the owner died and left the business to his eldest, again Rahul got a raise and now earns closer to $800 each week. In a push to be more entrepreneurial, he's offered to rent the shop at a fixed monthly rate so his pay would reflect his efforts to increase sales. The owners however insist their current arrangement is best.
It's a Long Search for Aspiring Business Owners
Nick Vail’s search for a business approaches 15 months and he expects it to pay back soon.
Vail, 31, worked as an accountant for First Citizens Bank and then became a partner in Maritime Market, an independent grocer in Bald Head Island, North Carolina. When he assessed what he wanted most out of a career was financial freedom provided by a certain amount of cash flow, he also concluded that climbing the corporate ladder would not get him there any faster. Buying an existing business seemed a savvy way to meet his professional and lifestyle goals. However, after casting a relatively wide net from Boston to California’s Bay Area, Vail expresses frustration that he is not yet a business owner since starting his search 15 months ago.
Like nearly 50 percent of Americans, Vail says he dreams of owning a small business but he's not a startup guy. "I have plenty of ideas for startups but I’d rather get involved in something less risky that allows me to do the things I want to do with my free time." He is looking at businesses generating around $1.5 million in revenue with cash flow of around $500,000. For a business with that amount of cash flow, Vail expects an asking price around $1 million. Vail does most of his searching on the leading business listing website, bizbuysell, but complains about the lack of options and opaque company information tightly guarded by business brokers. Company valuations are also a common pain point in small business transactions. "Owners perceive their companies to be worth more than they are by market standards" said Vail.
Businesses reach the market, but not for sale
Bill LaPoint is a principal investor in Boston based Aly Holdings and an adjunct professor at Babson College where he has taught “buying a small business”. He says one reason a qualified buyer may not find a business is because the listed businesses are not actually for sale. Owners will often list their businesses in order to gauge what people are willing to pay or the market value of the business. Another problem is that the leading listing websites are loaded with convenience stores, laundry mats, and other ‘mom and pop’ businesses that are heavily dependent on the existing owner working 70 hour work weeks, a schedule out of sync with lifestyle goals of some buyers.
Owners discover their business is not built to sell
With two months left on his lease, Ali Roozbehani owner of antiques dealer, Dining Room Showcase, in downtown Boston is still hoping to find a buyer for the business. After 35 years of selling fine antiques and furniture throughout greater Boston, rising rents in the Downtown Boston area have cornered Roozbehani between a last minute sale to a new owner and liquidating his business. If Roozbehani does not find a buyer in time his business will close.
The story of Dining Room Showcase is incerasingly common. The U.S. Bureau of Labor Statistics counts national business closures in its “Business Death Rate." The ominous term brings to light a potential crisis for the country. The office of Bureau and Labor Statistics found that the number of business deaths has outpaced the number of business births each year since 2008. Prior to 2008, business births had been greater in number by about 100,000 per year.
Roozbehani, 65, hired Stoughton based Lee Business Brokers to help find a buyer. The broker soon had him in touch with a painter interested in buying the business. The deal fell through because the buyer “had no experience refinishing” explained Roozbehani. In addition to selling antique furniture, Dining Room Showcase also makes money through repairing, refinishing, appraising, and reupholstering. A new owner would need to learn these jobs and also be passionate about antiques.
Roozbehani takes pride in selling unique treasures, many of them over a century old. The appraised value on his merchandise can be as high as $10,000 for the silk hand woven Persian Rug that is signed by its creator. When the business was listed for sale at Lee Brokers website on January 16, the asking price was $400,000. The price however may be negotiable. Large displays in the store windows inform that everything is on sale 50 to 80 percent off “Going out of Business."